COURT OF APPEALS UPHOLDS INSURER'S NOTICE REQUIREMENTS NOTWITHSTANDING CLAIMANT'S RELIANCE ON STRICT TIME LIMITS IMPOSED UPON INSUREDS BY THE VEHICLE AND TRAFFIC LAW

Well-settled principles of insurance law provide an insurer the right to demand, within the terms of its policy, that it be notified of any loss or accident covered under the policy and that it receive timely notice of a claimant=s commencement of litigation.  These have long been recognized as rights which provide an insurer the opportunity to protect itself and to appear and defend against a claim or exercise its right to settle.   Until a recent Court of Appeals decision, it appeared as if '370(4) of the Vehicle and Traffic Law might limit these rights for those claims arising out of the operation of vehicles for hire.

In American Transit Insurance Co. v. Anthony Sartor and Utica Taxi Center, Inc. 2004 WL 1472632 (July 1, 2004), the Court of Appeals was faced with the question of whether '370 of the Vehicle and Traffic Law requires the insurer of a taxicab to satisfy a default judgment entered against its= insured where the insurer was never notified that a legal proceeding had been commenced.

Sartor was injured in March, 2000 when the vehicle he was driving became involved in an accident with a taxicab owned by Utica Taxi Center, Inc., and insured by American Transit.  Although, pursuant to '370(4) of the Vehicle and Traffic Law, a taxi operator is required to give written notice of an accident to its insurer within five days, American Transit was not informed of the collision until seven months after it occurred.

Sartor commenced litigation for personal injuries against Utica Taxi Center, Inc.  in Federal District Court.  Utica Taxi defaulted.  Neither Utica Taxi nor Sartor provided notice of the litigation to American Transit.

Sartor eventually obtained a default judgment and was awarded $100,000.00.  Claiming that it had not been provided timely notice of the commencement of litigation or the application for a default judgment, American Transit disclaimed coverage and commenced a declaratory action seeking a judicial determination that its= disclaimer of coverage was proper.

According to '370(4) of the Vehicle and Traffic Law, A[e]very person operating a motor vehicle...as to which a bond or policy of insurance is required by this section, which is in any manner involved in an accident, shall within five days give written notice of the time and place of the accident to the surety or insurer.  Failure to give notice of the accident as herein provided shall constitute a misdemeanor, but shall not affect the liability of the surety or insurer.@

The Appellate Division reversed the decision of the lower court and held that Utica Taxi=s failure to properly notify American Transit of the accident did not relieve American Transit of its obligation to Sartor as the injured party.  Relying upon '370(4), the Appellate Division determined that even when, as in this case, an insured fails to properly notify its= insurer of an accident, the insurer=s liability to the injured party is not affected.  Therefore, American Transit=s disclaimer of coverage was deemed improper and the company was ordered to pay the default judgment obtained by Sartor.

The Court of Appeals disagreed and concluded that a violation of '370(4) does not obviate the insurer=s right to notice.  The Court noted that the claimant himself may provide notice to the insurer so as to protect his right to recovery.  Therefore, American Transit was not obligated to satisfy the default judgment obtained by Sartor.